Banking shares were trading mixed on the National Stock Exchange (NSE) after the Reserve Bank of India (RBI) raised its repo rate by 25 bps to 6.5%.

The policy comes amid rising inflation and a falling rupee. The widening current account deficit in an election year is also a key monitorable for the policymakers.

The banking shares indices Nifty Bank, Nifty PSU Bank and Nifty Private Bank were down 1% each as compared to 0.35% decline in the benchmark Nifty 50 index at 02:41 pm.

State Bank of India (SBI), Bank of Baroda, Indian Bank, Allahabad Bank and Canara Bank from public sector banks, South Indian Bank, Federal Bank, Axis Bank, IDFC Bank, ICICI Bank, YES Bank and HDFC Bank from the private sector were trading lower in the range of 1% to 2% on the NSE.

However, Punjab National Bank, Union Bank of India, Bank of India, Kotak Mahindra Bank and IndusInd Bank from the indices were trading in green.

Nifty PSU Bank index (up 14%) had outperformed the market in past one month, as compared to 6% rise in the Nifty 50 index till Tuesday. Nifty Bank index was up 5.3% during the period.

The Reserve Bank’s industrial outlook surveys (IOS) indicates that activity in the manufacturing sector is expected to remain robust in Q2, though there may be some moderation in pace.

Rising trade tensions may, however, have an adverse impact on India’s exports. Based on an overall assessment, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4%, ranging 7.5-7.6% in H1 and 7.3-7.4% in H2, with risks evenly balanced; GDP growth for Q1:2019-20 is projected at 7.5%.

“Turning to the growth outlook, various indicators suggest that economic activity has continued to be strong. The progress of the monsoon so far and a sharper than the usual increase in minimum support prices (MSPs) of kharif crops are expected to boost rural demand by raising farmers’ income. Robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand. Investment activity remains firm even as there has been some tightening of financing conditions in the recent period. Increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity,” the RBI said in a statement.